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What if COEs were allocated in a different way?

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If there's one thing that drivers in Singapore dislike, it's the COE.

But no matter how unpopular it is, no one can deny the important role it plays in managing Singapore's vehicle population.

The current bidding system allocates COEs to the lowest successful bid and above, within the specified quota of each vehicle category. Regardless of how high bids go in every bidding exercise, the final COE price will only be $1 more than the highest unsuccessful bid.

With demand exceeding the quota in recent years, COE prices have risen sharply. This has fuelled more discussion about how COE can be better and more fairly distributed.

Let's look at some of the commonly suggested methods and assess their feasibility.

Pay-as-you-bid system

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Under the pay-as-you-bid system (PAYB), all successful bidders would pay their actual bid prices. Supporters of this system believe that this would lead to more conservative bidding and lower COE prices.

The downside of PAYB is that people would be inclined to place an initial bid that is lower than what they were actually willing to pay. This means that they either risk not getting a COE even at a price they were willing to pay, or they would have to monitor the bidding process constantly and adjust their bids upward bit by bit until they reach the maximum that they are willing to pay.

The current system, on the other hand, simply incentivises one single bid at the true price that each bidder is willing to pay.

The outcome of PAYB is therefore likely to be similar to the current system, but with higher transactional costs and is less efficient due to the need for monitoring of real-time bidding.

Banning dealers from COE bidding

During the public consultations and surveys conducted by the Land Transport Authority to gather opinions on COE, some participants called for a ban on car dealers from bidding for COEs.

The common belief is that when COE prices are lower, dealers decrease their prices without offering the full reduction to customers. Dealers are therefore perceived to be profiting from the savings of lower COE premiums.

However, this works both ways. When COE prices are on the rise, dealers generally absorb some of the cost increase. They therefore act as a buffer for volatile COE prices in both situations.

Banning dealers from bidding for COE also has other shortfalls. Some car buyers prefer the convenience of dealers bidding for them. Hence, even if the ban were put in place, car buyers could easily get around it by getting dealers to bid in their names. That would make the ban on dealers ineffective and unnecessary.

New categorisation criteria for COE allocation

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Many have suggested using a car's open market value as the definition of a mass market car and to determine the car's COE category.

The problem with this method is its inconsistency. Due to variations in exchange rates and car specifications, the open market value could fluctuate for different batches of the same car model. This means that a car model could potentially fall into Category A one day, and Category B another day.

There were other suggestions, such as categorising a car according to its “family-friendliness”, engine power or carbon emissions. Some of these, like “family-friendliness”, were difficult to objectively define, while others, like carbon emissions, are already accounted for under the Carbon Emissions-based Vehicles Scheme.

The overall intent was to introduce more stringent criteria to ensure that Category A is kept for mass-market car models.

To meet this intent, a criterion for engine power limit (97 kilowatts or 130 brake horsepower) was implemented on top of engine capacity limit (1,600 cubic centimetres) in February 2014.

As with the original engine capacity criterion, a stable, technical criterion that can be objectively measured was chosen as a proxy for the value of a car, which can fluctuate.

Even so, the new criterion resulted in almost 30% decrease of the median open market value of cars registered in Category A from February to July 2014. Correspondingly, there were also more cars with lower open market value of less than S$20,000 registered in Category A. This shows that the new criterion increased the chances of cars with lower open market value to be registered under Category A.

A sound tool to manage vehicle population

With all things taken into consideration, many do agree that the current COE system remains an effective tool to manage the overall vehicle population. While car ownership has certain advantages, focusing our resources on a robust public transport system and other mobility options is a better way to ensure convenience and accessibility for everyone.

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